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Smaller Deals Drive M&A Market

December 17, 2014

J. Sharpe Smith —

December 18, 2014 — While the deals are small in size, Milestone Media Partners experienced its best year ever in brokering tower deals in 2014. It participated in 30 transactions (including valuations) with 167 sites, and next year may even be better. In the first and second quarters of 2015 Milestone expects to close on eight transactions with 96 sites.

“The last four years have gotten progressively better for us,” Thomas Engel, Milestone principal, told AGL Link. “We entered the tower market in the mid-1990s and did eight to 10 transactions annually for the first 10 to 15 years, and that has grown to 30 transactions this year.”

The industry is being quickly consolidated into a dozen or so companies, and half of those companies will be consolidated into larger companies over time. The shrinking inventory of towers has forced buyers to look beyond cell towers to aggregate broadcast towers, according to Engel.

“It was difficult, three or four years ago, to sell a broadcast site,” he said. “Now we are seeing most of the larger to mid-size companies willing to acquire broadcast sites and even AM sites, which are difficult to collocate on. The AM sites are precious because of their locations, many of them are in areas where it is difficult to find places to develop a cell tower.”

Engel is seeing tower owners, especially broadcast and two-way radio companies, that in the past didn’t want to sell, begin to understand their ability to monetize these assets while they still need to use them by leasing back space. Two-way radio tower owners are selling their properties in parcels as they get ready to retire.
The multiples that Milestone Media saw in 2014 ranged from 14 to 23 on towers with multiple technologies and buyers with different levels creditworthiness.

“The multiples are high,” Engel said. “They are the highest I have ever seen them, partially because of interest rates and mostly because the inventory of towers is shrinking.”

Investment-grade carriers such as AT&T and Verizon have multiples going for as high as 24 to 29 on a single build to suit with room for multiple carriers in a good area.

“The buyer will pay a higher multiple, because they know there is additional collo revenue coming quickly,” Engel said. “The multiple goes down as it matures. As a tower gains carriers the multiple goes down by one to three.”

Sprint and T-Mobile are in the low 20s for multiples, while broadcast multiples range from six to 16. Multiples for WISPs run from eight to 14, multiples for government run in the nine to 16 range.

“The size of the multiple is impacted by the perceived future of the carrier. The broadcasting industry is in disarray. Some broadcasters are having trouble paying their tower rent, but others are strong players,” Engel said.